Coop Farms Deemed Non Core - A Strange Conclusion in a Food Business

How disappointing to hear that the Coop has decided to sell its 15 farms after owning them since 1896. As their web site says –“nothing makes better sense than for the Co-operative to produce our own food for our own stores.” And there will have been many consumers who believed this and saw it as a reason to shop at the Coop.

Yet, dig a bit deeper and it is clear that the farms business, like every other aspect of the Coop has been run in an ad hoc, un-strategic and ultimately disastrous fashion.

It turns out that of the 49,000 acres under Coop management, just one third is owned, and the remainder is on let land or contract farming arrangements.

And, far from fulfilling the promise on the Coop website to use Coop produce in Coop stores, it turns out, according to Chief Executive Euan Sutherland, that only 2-3% of production goes to its own stores, mainly potatoes. Some 70% of production is in cereals, mostly sold to other companies.

Despite ownership of such vast quantities of land, the Coop farms none of its own livestock. It was in dairying but came out in 2003 to concentrate on arable products.

The trends towards buying local, worrying about provenance and buying British has been evident since the early 2000’s. The Coop was clearly aware of this, hence the blurb on the website, yet lacked the will or the sense to utilise their precious farming asset to take advantage of the trends. Indeed, the Coop could be accused of blatantly misleading consumers.

Anyway, the farms will go. Apparently they will raise about £140m which will help to pay down debt.

So what of the Coop food business now? It has been losing market share for years. The new head of food, ex Tesco executive Steve Murrells said in an interview last week “Our stores were, frankly, awful”. His answer is to streamline the range of goods offered, open more smaller stores to take advantage of the growth in convenience shopping, and test out selling online.

That will not in itself be enough to save the business. Tesco and Sainsbury have been investing in convenience and online for years, and Morrisons is running hard to catch up. The Coop has no obvious point of difference in their offer to attract consumers from the big players.

Yet in the farms it could have had a powerful differentiator. In today’s climate of increasing worry about where food comes from, animal welfare and ethical production considerations, what could be more compelling than knowing that the place you shop at has managed the production of the food it sells all the way from farm to shop shelf.

But of course it is too late now. It looks like the Coop is throwing away what could have been a competitive point of difference in an increasingly cut throat grocery world.

A Look Inside the Grocery Shopper's Head

According to researchers Kantar Worldpanel the average shopper spends around £3,800 per annum on groceries, and spends the equivalent of 16 working days in store. 

Unsurprisingly, given the time and money involved, shoppers are choosy about where they buy their groceries.

It is clear now that quality and value are non negotiable when it comes to shoppers deciding where to shop.

So if quality and value are a given, what else matters?

Kantar asked shoppers on a recent shopping trip in the Big 4* supermarkets which statement best described their mind set.

42% chose budget management, focussing on getting the items they wanted without spending too much. 25% chose time pressure, aiming to get in and out of the store as quickly as possible. 15% were happy to browse. Just 9% felt that searching for special offers was the best description of them on the trip in question.

However, Kantar have found that shoppers’ mind sets differ depending on the type of product being bought.

“Fast Find” covers pre planned purchases like bread and milk, and here the shopper’s main aim is to buy what they want without spending too much, and get in and out of the store in double quick time. They spend little time looking for special offers. Which does raise the question of why retailers feel the need to sell milk at silly prices as was the case a couple of years ago.

“Restock and save” items are less frequently bought products like tea, coffee or washing powder. Such products do not perish so this is the category where 39% of shoppers look hard for special offers. Again, a finding such as this makes one wonder why manufacturers run promotional deals such as BOGOFS – the sensible consumer does not buy any more over the long term, instead preferring to stock up until the next time the product in question is on promotion.

“Classic restock” covers items such as fruit juice and cereals, and health and diet considerations are second only to budget management.

In the “Meal solver” the shopper’s prime focus, outweighing even budgetary considerations, is to find convenient meal solutions. This suggests that the more help that  retailers can give about easy to prepare meal ideas the more likely a shopper is to return.

The final category is treat where shoppers buy on impulse and all other considerations come second.

Kantar’s key message from the research is that price and quality are a “must”, and now it is the shopping experience both within category and overall that matters to consumers. They say that whilst their research focuses on the Big 4, the findings are relevant to smaller shops.

*Big 4 supermarkets are ASDA, Morrisons, Tesco and Sainsbury

Rapid Changes in Meat Eating - All Down to Price and Horsegate.

 From BPEX and EBLEX comes interesting data about the nation’s meat eating trends. BPEX’s quarterly category report shows that fresh meat consumption in the year to mid October 2013 is down in tonnage by 2%, although up in value by 5%.

It is the differences in species consumption which are most fascinating, and they show that consumers are quick to change their buying patterns according to price.

For the first time for years the amount of fresh chicken eaten has gone down. The 3.5% drop is significant when considering that in the previous year consumption grew by 7%. The change is driven by prices which on average went up by almost 10%.

On the other side of the coin an average reduction in prices of 4% has seen lamb consumption grow by a whopping 12.5%. Again, this is a huge change in buying habits for the lamb market had been dropping year on year since 2008. BPEX tells us that pork, where volume sales have dropped by 4%, has been the biggest loser with leg and shoulder joint sales falling as consumers switch to lamb for their Sunday roast.

Over the same period beef consumption dropped by 1% as prices rose by an average of 6%.

 Horsegate fits into the picture because, EBLEX tells us, consumer concerns about exactly what it was they were eating drove retailers to buy more British produced meat. As a result supplies of beef, chicken and pork were tight and prices rose.

There are signs though that the pendulum may be swinging again. Stories are appearing about sizeable increases in imports of Polish and Irish beef, which if sold at a low enough price may trump shopper worries about how the meat was produced.

BPEX also publishes details of which supermarkets over or under trade in fresh meat relative to their market share for all groceries.

Tesco, ASDA, and the Coop under trade. Sainsbury, Waitrose, discounters ALDI and LIDL and beleaguered Morrison’s overtrade. Price alone is therefore not a guide to how well a supermarket might do on fresh meat sales. The overtraders are a mixture of the upmarket and pricey (Waitrose and Sainsbury) and the “noted for low prices” discounters and Morrisons. Conversely Asda and Tesco might be said to be operating at the lower end of the price spectrum yet under trade.

Doing well in meat demands a tricky balance of good value, good quality, provenance and trust. Get it wrong and shoppers will vote with their feet and take their meat buying elsewhere. The challenge is made more difficult by shoppers' increasing tendency to change their buying behaviour with lightning speed. 

Spotlight on Morrisons – Why is it Struggling and What Can be Done to Stop the Rot

Supermarkets, apart from ASDA, have now reported their Christmas trading results. “Patchy” might be a good description with Aldi, Lidl and Waitrose booming, Marks and Spencer doing well, but Tesco and Morrisons down on the previous year. Even Sainsbury only managed 0.2% growth.

It was Morrisons who shocked most with a 5.6% drop in sales versus the previous year, and this at a time when the economy is generally agreed to be picking up.

Their performance highlights both long and short term issues. Their long term problems are well documented. Until last week they had no online presence at a time when more consumers are turning to the internet for grocery shopping: and they have few convenience stores which puts them at a disadvantage as people move away from mid week top up shopping in bigger stores, preferring to avoid temptation and buy just the essentials at their local convenience store.

   

Yet, neither Aldi nor Lidl offer online, and have few convenience shops, and Tesco offers both but is struggling.

Morrisons problems must therefore be more deep rooted than lagging behind in two growth areas.

Perhaps their biggest issue is that shoppers cannot see a compelling reason to shop at Morrisons. They are uncompetitive on price versus the discounters, and lack the quality reputation of Waitrose or Sainsbury. This lack of clarity about what the brand stands for is obvious when viewing the Morrisons Christmas advert, where the four points made about Morrison’s offer (service, wide variety, having their own chefs and “putting on a show for little dough”) were eclipsed by the undoubted star quality of Ant and Dec. Four messages were three too many,  and money would have been better spent on articulating one reason to shop at Morrisons rather than waste hundreds of thousands on personalities who drown out the message.

So Morrisons must get back to its roots and the core values that made it into a success. The company will have reams of consumer research to guide them, but price and value for money are likely to figure strongly.

Morrisons are too small to be able to match the discounters on the price of packaged goods. Both Aldi and Lidl are huge internationally and can use their buying clout to keep prices rock bottom. Rather, Morrisons should be focussing on the one thing that all of their competitors will find difficult to match, which is that Morrisons, by owning their own abattoirs, bakeries and fresh fruit and veg packing houses can offer fresh food at unbeatable prices.

They need also to be true to their values. It did not receive much publicity but at the back end of 2012 they started to stock an imported red meat brand called Helmsley. This was followed in November 2013 by imported chicken. Such stepping away from their stated policy of selling only UK produced meat does little to boost consumer confidence, and is the sign of a muddled thinking business.

It is to be hoped that Morrisons swiftly get back on track. The supermarket sector needs competition. The more successful supermarkets there are to choose from

the better for all in the food chain.

Genetically Modified Food Labelling - On It's Way to the UK?

The UK observes American trends but usually queries their relevance. There is one trend though that could have massive implications for food businesses over here and that is the drive to label all foods that contain genetically modified ingredients.

To date, here and in the US, the emphasis has been on claiming that foods do not contain GMO’s.

Now the debate has moved on and a head of steam is building up to say that consumers need to know exactly what is in their food, not just what might not be in it, and that means declaring if food has a GM content.

The implications are huge. USDA, (the American DEFRA) estimates that in 2013 some 90% of the corn crop and 93% of the soybean crop were planted with genetically modified seed. 90% of rapeseed is genetically modified. Corn based products go into a wide array of foods, including soft drinks, cereals, and  breads. Rapeseed oil is widely used as are soy bean based products, most notably in animal feed. Consumers doing their grocery shop will find it difficult to avoid buying GM containing food. They may not like this and start demanding non GM versions. 

The implications are huge. 

Should this happen then every player in the food chain will be affected. As Karen Batra of the Biotechnology Industry Organization says “Farmers, food producers, grocers and retailers would have to implement separate and distinct systems to grow, handle, record, process, transport and sell products”. There will be many players in the food chain who simply cannot make a change to non-GMO products for cost reasons.

Many will say that it won’t happen here.

 There is though an interesting straw in the wind. Wholefoods Market, an American premium food retailer with 9 stores in the UK, has committed to labelling all its GM containing foods by 2018, with many labelled before then. Currently the move is confined to the US and Canada, but if it proves a business builder then they may decide to adopt a similar stance in the UK. From there it is but a short hop to the big retailers here implementing a similar policy.

The debate about whether GM products should be allowed in the UK ebbs and flows. It may become obsolete if consumers are forced, through labelling, to confront the issue and decide that GM foods are something they are not prepared to buy.

Fever-Tree Mixers - A Masterclass in How to Add Value

Fever Tree mixers are basically a combination of water sugar and flavourings – just like Schweppes or any mixer sold under a retailer’s own brand.
Yet newcomer Fever - Tree retails at over three times the price of old established Schweppes, and as much as seven  times the price of retailer brands.

“Hmm, must be a tiny brand” will be most peoples’ reaction. Not true. Whilst Fever Tree is undoubtedly a niche product , it is a sizeable niche . Turnover in 2012 was £16.4 million, up from £12 million the year before, and this year turnover is predicted to top £25 million.

It is a profitable niche, reporting underlying earnings in 2012 of £5 million before tax, depreciation and amortisation. And it has international appeal with 70% of its sales coming from abroad, mainly Spain and the US.

Charles Rolls and Tim Warrillow who founded the brand attribute its success to outstanding product quality. Fever Tree products contain only fresh ingredients and natural flavourings which are claimed to be unique. Its products are made from cane sugar, and none contain artificial sweeteners like aspartame or saccharin.

The mixers do indeed taste good. But I would suggest that the packaging plays a big part in the brand’s appeal. The bottles are glass, not plastic. The simply designed, shiny labels look classy, as does the outer sleeve. Displayed on supermarket shelves they make everything else look cheap.

And then there is the story behind the brand. It seems that the co founders travelled to the four corners of the earth to source their ingredients. So the quinine comes from a plantation in the Congo that produces the purest form of quinine in the world. Lemon and thyme for the tonic come from Provence, and the three gingers used come from Ivory Coast, Nigeria, and Cochin in India.

There may be psychology at play. After all, if you have shelled out over £26 for a bottle of fancy gin or £36 for vodka (the going rate for Tanqueray and Grey Goose) then you probably want to buy what you believe to be the best mixer available. As the Fever-Tree website says “If ¾ of your gin and tonic is tonic, make sure you use the best”.

It is difficult to break down what adds value. Usually it is a combination of factors, both rational, like product taste and ingredients, and emotional, like how much the story behind the brand appeals, and how buying the brand makes you feel about yourself.

Fever - Tree manages to combine a myriad of factors and turn them into a considerable success.

Small Stores Rise Again

What goes around comes around.

How true that is for small stores. Having reached endangered species status the wheels have turned and now buying food in small local stores, usually styled “convenience” or C-store shopping, is forecast to be one of the fastest growing sectors of the market. IGD (Institute of Grocery Distribution) says that the convenience sector will grow by over £10bn to reach £46.2bn by 2018.

Consumers are buying more food locally to cut down on fuel costs, to help budgeting because they are less tempted to spend on stuff they either don’t need or which is likely to have passed its sell by date before they get round to eating the product, and to save time. According to IGD 85% of consumers visited a convenience store in the last month, and in August 2013, 9% of people did their main shop at a convenience store.

All the big retailers have jumped on the bandwagon. Even Aldi who have hitherto resolutely stated that they will focus only on on their traditional supermarkets, are trialling a convenience store in West London.

It is not just the big supermarkets who are developing strategies for convenience stores. Costcutter offers 3 different models of small store shopping – good, better and best – and shop owners can choose the model which best suits their local customers.

The keys to successful convenience store management start as ever with the needs of the shopper. In the past these needs may have been limited to topping up on staples like bread, milk and eggs, and buying a daily paper, bar of chocolate or cigarettes. The game is changing now, and whilst many will still visit the store for these items, shoppers say that they would like more fresh food counters, fresh food available at the front of the store, and fresh food grouped together.

Fresh and local is a powerful selling message. Smaller stores whose customers like the idea of supporting their local farmer or grower can grasp an edge over the bigger players by stocking local goods and displaying them with a strong message about the individuals who produce the food.

The knowledge that small store operators can develop about their customers, many of whom are regulars, means that they can tailor their offer specifically for them. An example quoted by IGD is that a store sited near to a railway station could offer food for commuters to eat on their journey to work, and ensure that they have ingredients available so that those same travellers on the way home can buy all that is necessary to prepare an evening meal.

There will be many other entrepreneurial ideas that smaller retailers can embrace and profit from. The very good news is that shoppers are looking for first class convenience stores and will support those who cater for what they want.